What is generally true about conventional loans that require private mortgage insurance?

When a conventional loan requires private mortgage insurance (PMI), it's typically because the borrower is making a down payment that is less than 20% of the home's appraised value. This insurance serves to protect the lender in case the borrower defaults on the loan. One key characteristic of PMI is that the insurance premiums often get incorporated into the monthly mortgage payments. This makes the cost of insurance more manageable for borrowers, who can spread the expense out over time rather than having to pay a lump sum upfront.

Including PMI premiums in the monthly payments helps borrowers finance their homes more easily, as it reduces the initial financial burden and allows them to access mortgage financing with lower down payments. Thus, this option accurately reflects a common practice with conventional loans that require private mortgage insurance.

Other options may contain elements of truth but do not encapsulate the fundamental nature of how PMI operates within the context of conventional loans. For instance, protecting against loss in a specific percentage of the loan refers to a different aspect of loan risk management, while comparisons of rates with government-backed loans delve into different factors unrelated to the fundamental role of PMI. The maximum financing percentage and the nature of mortgage rates also do not directly address the essential relationship between PMI and conventional loans.